"And we headed out of the hotel, went to the airport, got on the plane and, about halfway through the flight, I found myself alone in the President’s cabin with him. I said, 'Mr. President, you don't have a cold. There’s something going on.' He said, 'You bet there is something else going on.' And he said, 'When you find out, grab your balls and run.'
Pierre Salinger, On the Cuban Missile Crisis, 1995
This is a fairly nice description of the tip of the credibility trap.
It is a description of moral hazard, of a partnership between the corporations and individuals in government. And it is a corrosive acid on the body politic. MF Global is not the end of it, but only a new beginning.
With every unpunished crime, with every successful deception, the monied interests grow more self-assured, and bolder.
The more rational in the financial system, academia, and the media wish this to stop, and know it will end badly, but a powerful few will have no restraints.
And so the dance must continue while the music keeps playing. The stewards of society, the Congress, the President, the media, the Fed, none have the moral sense and courage to merely stand up and say, "Stop. Enough. Stop beating your victims. Stop abusing the public."
Well, some may say it. Tavakoli, Yves, William Black, Elizabeth Warren, Barry Ritholz, Simon Johnson, and others have all said it, well, and many times.
And among the powerful Obama may say it. Romney, Santorum, and Gingrich may say it. But they do not mean it, and will do nothing substantial about it. And that is a national tragedy.
As the banking regulator and monetary authority, the Fed was particularly culpable and responsible for the housing asset bubble, the collapse of which is shown in the last chart.
Their 'job' is to take away the punch bowl when the party starts getting out of hand. Instead, first Greenspan and then Bernanke fed and at times even promoted through the stifling of dissent the malinvestment and large scale banking fraud that almost brought the global economy to the brink, and the coming derivatives crisis which almost certainly will if something radical is not done about it.
They have done worse with their handling of the TBTF banks, but the impact of that remains largely in the future. And they operated under a cloak of secrecy and sometimes deception, greatly influencing economic thought through their growing bureaucracy.
The shame is that the craven Congress gave them even more power in the aftermath.
Let us pray for those whose hearts are hardened against His grace and loving kindness by greed, fear, and pride, and the seductive illusion and crushing isolation of evil.
We pray that we all may experience the three great gifts of our Lord's suffering and triumph: repentance, forgiveness, and thankfulness. And in so doing, may we obtain abundant life, and with it the peace that surpasses all understanding.
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